Many decisions need to be made about your well-being in your golden years.
Part of those decisions includes how you are going to fund your retirement-from 60 to the rest of your life.
That could very well be a good 30-40 time frame that you have to supply - which is all the-more reason to recognize Roth IRA vs 401k's.
Worry not, as the pros and cons - apples to oranges - will be examined here.
Roth IRA vs 401k It's really not as complicated as you may think.
Anytime you have a 401k sponsored by an employer, who also matches contributions-you would be very wise never to forego those additional savings, especially because of the fact that the interest paid on the account will compound over the years.
Additionally, your 401k is fully tax-deductible at the end of the year.
When you hit 59.
5 years of age, you can start the distribution cycle penalty-free, and start paying back the taxes little-by-little with each disbursement.
One of the only exceptions to the 59 year rule is if you become "officially" disabled through no-fault of your own.
With a 401k, you can contribute as much as $16k per year if you are under 50, and up to 22k if you're 50 or over.
With that said, one of the drawbacks (in addition to the last paragraph's last sentence, possibly) is that many companies don't invest in wide diversity of funds-they namely stick to certain index funds; some can even be high maintenance (in terms of the expenses).
Roth IRA vs 401k With a Roth IRA, your contributions plus your employers' contributions (if applicable) are post-tax money-meaning it will be taxed, and that there is not a tax deduction you can claim on it.
The upside, though, tends to outweigh those drawbacks-especially if you earn more than about $50k and have no or few dependents.
First, once you establish a Roth IRA, your funds are available for disbursement (if needed) after the initial waiting-period of only five years.
Whether you wait until 60 to withdraw money, or if you should need it sooner-the money will be there and will only be taxable if withdrawn before 59.
5 or before the 5-year seasoning period.
The IRS also imposes limits on Roth IRA contributions, just like a typical 401k plan; however, the annual cap is considerably greater.
If you make $105k or less per year, you can contribute the maximum amount allowed to your Roth.
That means $5,000 for individuals 49 and younger, and $6,000 for those older than 49.
This is actually where traditional 40lk's have the upper-hand-because, while there are still contribution limits, there is no income cap.
So how in the world do I decide? Take note, that if you have both a traditional 401k and a Roth IRA, even though they are in different accounts, the sum of the two still cannot exceed the 5/6 rule per year.
Joint-filers (married) can up to $167k.
When tackling the Roth IRA vs 401k conundrum, it all comes down to what's best for your individual needs and what is going to be the most lucrative deal for you.
For some, 401k's will be the better deal (especially, as aforementioned, if you in a lower-tax bracket and your employer matches your contributions dollar for dollar).
For others, usually those in higher brackets (but not too high, of course) a Roth IRA is probably more sensible.
Then again, either way, you can still opt to contribute to both plans simultaneously.
Part of those decisions includes how you are going to fund your retirement-from 60 to the rest of your life.
That could very well be a good 30-40 time frame that you have to supply - which is all the-more reason to recognize Roth IRA vs 401k's.
Worry not, as the pros and cons - apples to oranges - will be examined here.
Roth IRA vs 401k It's really not as complicated as you may think.
Anytime you have a 401k sponsored by an employer, who also matches contributions-you would be very wise never to forego those additional savings, especially because of the fact that the interest paid on the account will compound over the years.
Additionally, your 401k is fully tax-deductible at the end of the year.
When you hit 59.
5 years of age, you can start the distribution cycle penalty-free, and start paying back the taxes little-by-little with each disbursement.
One of the only exceptions to the 59 year rule is if you become "officially" disabled through no-fault of your own.
With a 401k, you can contribute as much as $16k per year if you are under 50, and up to 22k if you're 50 or over.
With that said, one of the drawbacks (in addition to the last paragraph's last sentence, possibly) is that many companies don't invest in wide diversity of funds-they namely stick to certain index funds; some can even be high maintenance (in terms of the expenses).
Roth IRA vs 401k With a Roth IRA, your contributions plus your employers' contributions (if applicable) are post-tax money-meaning it will be taxed, and that there is not a tax deduction you can claim on it.
The upside, though, tends to outweigh those drawbacks-especially if you earn more than about $50k and have no or few dependents.
First, once you establish a Roth IRA, your funds are available for disbursement (if needed) after the initial waiting-period of only five years.
Whether you wait until 60 to withdraw money, or if you should need it sooner-the money will be there and will only be taxable if withdrawn before 59.
5 or before the 5-year seasoning period.
The IRS also imposes limits on Roth IRA contributions, just like a typical 401k plan; however, the annual cap is considerably greater.
If you make $105k or less per year, you can contribute the maximum amount allowed to your Roth.
That means $5,000 for individuals 49 and younger, and $6,000 for those older than 49.
This is actually where traditional 40lk's have the upper-hand-because, while there are still contribution limits, there is no income cap.
So how in the world do I decide? Take note, that if you have both a traditional 401k and a Roth IRA, even though they are in different accounts, the sum of the two still cannot exceed the 5/6 rule per year.
Joint-filers (married) can up to $167k.
When tackling the Roth IRA vs 401k conundrum, it all comes down to what's best for your individual needs and what is going to be the most lucrative deal for you.
For some, 401k's will be the better deal (especially, as aforementioned, if you in a lower-tax bracket and your employer matches your contributions dollar for dollar).
For others, usually those in higher brackets (but not too high, of course) a Roth IRA is probably more sensible.
Then again, either way, you can still opt to contribute to both plans simultaneously.
Source...